AHDB Pork UK Pig Meat Market Update

BPEX UK Pig Meat Market Update - January 2013

UK Prices

Having increased sharply during September and October, reaching record levels, GB finished pig prices continued to rise during November and early December, albeit much more slowly. The monthly average EU-spec DAPP for November was 160.25p per kg, the first time the monthly average has topped 160p. This was around 13p higher than a year earlier and 24p up on November 2010. The rise in prices was originally sparked by higher EU prices over the summer but GB prices have remained strong despite continental quotes easing since mid October. This can be partly attributed to robust demand in the run up to Christmas but may also reflect some changes in the supply chain. By week ended 22 December, the DAPP had risen to 161.09p per kg.

Carcase weights in the DAPP sample during November were close to their levels a year earlier, having risen sharply during September and October. Weights peaked in early November at just over 79.5kg before easing back slightly as producers began to pull pigs forward in advance of the Christmas holidays. The monthly average for November was 79.21kg, virtually the same as both October’s figure and last November’s. By Christmas, the average weight had fallen to below 78kg.

The strength of finished pig prices has helped to pull weaner prices higher since September, with producers increasingly confident that prices will remain firm next year. Prices rose particularly sharply during October but have continued to climb throughout November and December. The monthly average price for November was a penny under £45 per head, nearly £4 up on the October average and £3 higher than last November. The price passed £46 per head in early December and by week ending 22 December it stood at £46.19 per head, the highest level since September 2010.

Cull sow prices were relatively stable through much of November, continuing the trend of the previous month, despite falling prices in Germany, the main export market. This was partly because throughputs began to return to more normal levels as higher slaughter pig prices reduced the pressure on producers to destock. The average price for November was 112.41p per kg, about a penny lower than in October and 2p down on last November. However, from late November onwards, demand from manufacturers fell sharply as Christmas orders were already fully supplied. A seasonal fall is normal but it began a little earlier this year. By week ended 15 December, the price had dropped by eight pence in three weeks to 105.35p per kg.

EU Prices

The decline in EU pig prices which began in October continued throughout November and early December. However, having been at near record levels at their peak, prices remained well above year earlier levels. The monthly average price for November was €180.28 per 100kg, almost nine euros lower than the previous month but still more than €20 higher than a year earlier. Indeed, but for the two previous months, this would be the highest monthly price since 2001. With pig supplies remaining more plentiful than earlier in the year and demand somewhat subdued, prices continued to fall and by week ended 15 December they had reached €173.83 per 100kg. While this was nearly €20 below the October peak it was still 13 euros higher than a year earlier.

Comparative EU Pig Prices (as at 16 December)

Figures show % changes in 4 weeks to 16 December Source: EU Commision

All of the major producing Member States recorded lower prices in November than in October with price falls ranging from seven per cent in France and Italy to three per cent in Denmark. Prices have continued to fall into December in most countries but have stabilised in Denmark and Spain.

With the euro strengthening against the pound, the UK reference price has also fallen in euro terms since mid November, albeit by less than prices elsewhere. As a result, by mid December, the UK price was around €18 higher than the EU average (about 15p per kg). A gap of this size is not unusual but it is higher than has been typical over the last two years.

EU weaner prices have been broadly stable since the start of October at a time of year when they would normally be rising in anticipation of higher finished pig prices in the spring. However, this year prices had already risen earlier in the autumn, following the increase in pig prices. Prices have ranged between €46 and €48 per head over the last two months, a price level which is about eight euros higher than in November 2011.

Cull sow prices in the main EU Member States followed finished pig prices lower from mid October onwards. By mid-December, the key German M1 sow price had fallen 15 cents in seven weeks to stand at €1.47 per kg, although this was still 14 cents higher than a year earlier.

UK Slaughterings and Pig Meat Supplies

UK clean pig slaughterings in November were only fractionally higher than in November 2011 at 830,000 head. However, this was largely due to a sharp fall in Scottish throughputs following the closure of the Vion-owned Halls of Broxburn, the largest Scottish abattoir. As a result, the number of pigs slaughtered in Scotland was less than half the level last November at 27,000 head. Throughputs in England and Wales were up five per cent while in Northern Ireland they were up one per cent. Clean pig slaughterings for the first eleven months of this year totalled 9.3 million head, two per cent more than the corresponding period in 2011.

Having been inflated since July, the number of adult sows and boars culled during November returned to more normal levels. Higher pig prices have reduced the pressure on producers, leading to fewer choosing to liquidate or destock herds. The number of adult pigs culled in November was 21,300 head, less than two per cent more than AHDB/BPEX estimates for November 2011. Nevertheless, the total number of cullings in the year to date was up eight per cent at 247,000 head. This is 18,000 more than in the first 11 months of last year, with over 15,000 of the increase recorded between mid June and November.

The average UK clean pig carcase weight was marginally lower than the previous month and was also little changed from November last year at 78.6kg. With neither slaughterings nor carcase weights significantly different from a year earlier, pig meat production was virtually unchanged at 68,400 tonnes. However, the year to date total remained two per cent higher than the first eleven months in 2011, at 762,200 tonnes.

Based on the DAPP sample, estimated clean pig throughputs increased in the first two weeks of December reaching their highest level of the year as the Christmas marketing period was in full swing and pigs were pulled forward in advance of the holiday. Numbers were, if anything, a little higher than last year. Carcase weights continued to track close to last year’s levels, declining somewhat as the Christmas shutdown approached.

In contrast to most of 2012, UK imports of fresh and frozen pork during October were slightly higher than a year earlier. At 31,100 tonnes, their highest level so far this year, shipments were up by three per cent, the first year-on-year increase of 2012. This came as EU supplies were somewhat more plentiful than in the previous months, while UK production growth was slower than earlier in 2012. Volumes from Germany, France and Spain have bucked the declining trend throughout the year and all three continued to ship higher quantities in October. In addition, Dutch shipments were 10 per cent up on October 2011. The only major suppliers sending less pork to the UK were Denmark and Ireland.

Bacon and ham imports were also higher than a year earlier in October at 23,700 tonnes. As with pork, this was the first year-on-year increase in 2012, albeit by just three per cent. Strong imports from the Netherlands, which were more than a quarter higher than a year earlier, more than offset declining volumes from Denmark and Germany. Strong imports of processed products continued, with sausage shipments up by 24 per cent and volumes of other processed products up 38 per cent.

Despite October’s increases, imports of both fresh/frozen and cured pig meat in the first ten months of this year were down by seven per cent on a year earlier. However, this was largely offset by increased processed imports, so the overall volume of pig meat imported was little changed.

Last month’s strong export performance continued in October. While fresh and frozen pork shipments were down from September’s high point, they were still 14 per cent higher than in October 2011 at 14,900 tonnes. The increase was partly the result of shipments to China, which topped 2,000 tonnes for the first time, although this was offset by lower quantities sent to Hong Kong. There was also strong growth in exports to other EU countries, which were up by 13 per cent, driven by diversification into a wider range of markets rather than marked growth in any of the larger ones. The recent crash in bacon and ham exports continued, with shipments down by nearly three quarters, with Ireland, the Netherlands and Denmark all taking much lower quantities. However, processed shipments nearly doubled, with Ireland the primary market.

Offal exports also remained very strong, with October’s total of 6,400 tonnes the highest since at least 1997. This was more than 80 per cent higher than a year earlier and more than 1,000 tonnes up on September’s figure, which was itself the highest since 1999. Shipments to China were offset by falling volumes sent to Hong Kong. Instead, the increase was largely down to higher exports to Belgium, Germany and the Netherlands. Some of this may be for manufactured products but some is likely to have been re-exported.

Feed Prices

London feed wheat futures (May 2013 contract) fell by £6 over the last month, closing at £216.00 per tonne on Tuesday 18 December. Since 1 October the price has been volatile, moving in a range of £204-£229. US maize futures (March 2013) fell to £173.90 per tonne, down by just under £10 on the month.

Domestic planting intentions, revealed by Andersons on behalf of AHDB/HGCA, suggested a decrease in winter wheat area from 1.99Mha to 1.76Mha and an increase in spring cropping. These estimates are subject to change depending on weather conditions. ADAS suggest that 7% of wheat crops, 5% of barley and up to 20% of oilseed rape sown could be unviable by spring, depending on the weather over winter.

The UK is forecast to be a net importer of wheat this season, with official forecasts at just over 2 million tonnes after a poor UK harvest in terms of both yield and quality. This is compared with imports of less than 1 million tonnes last season. The majority of imports will likely be milling wheat. Also, maize imports have increased as feed blenders used more maize in rations and biofuel plants substituted it for domestic wheat. Maize imports in the crop year to October are at 360,000 tonnes, up from 228,000 at this point last year.

Domestic wheat remains at a premium to barley, with the latest HGCA corn returns reporting a £20 per tonne difference in delivered values. This could encourage some feed blenders to increase the amount of barley used in rations.

The USDA has revised down their US wheat export figure this month, causing a fall in prices. World production estimates were also increased as were ending stocks. World maize production was raised by just under 10Mt, although most of this came from increased Chinese production, which was paired by increased Chinese domestic demand. South American maize estimates were left largely unchanged.

Oilseed prices have risen slightly this month and at close on 18 December nearby CBOT soyabean futures were worth £330 per tonne, up by £6 on the month. UK imported Hi-Pro soyameal was available for £390 per tonne from the east coast on Friday 16 November, up from £367 as at 16 November.

The USDA left soyabean estimates largely unchanged, with only a small increase in the world production figure. Major South American production numbers remained as they were. Argentina’s soyabean sowing progress remains slower than last year, although hopes are still high for record production. Planted crops were said to be in a good condition.

US export commitments to the week ending 6 December were at 29.7 million tonnes, up from 22.5 million at the same date last year. China recently cancelled 300,000 tonnes of shipments and a further unknown buyer cancelled 120,000 tonnes. Historically, when China have cancelled shipments they have re-bought quantities at lower prices and so it is questionable what this means for the market.

Total Cost of Pig Production Compared with the DAPP

Source: AHDB Market Intelligence

According to AHDB’s provisional estimates, the cost of pig production in December was higher than in November as feed prices rose again, largely due to higher wheat prices. The estimated figure for December was just over 167p per kg, more than 5p higher than the previous month. This means that costs are back close to their level over the summer, when they peaked at 170p per kg in August. This December’s costs are more than 20p higher than a year earlier, when producers were, on average, briefly making a profit.

Despite pig prices reaching record levels, the increase in costs means that producer losses are rising again. Based on the current level of the DAPP, producers are losing an estimated £5 per pig during December. Cumulative losses for 2012 as a whole are estimated at just under £60 million. Forward feed quotes suggest that production costs are likely to remain at or above their current level until next summer, at least. This means that pig prices will need to rise further for the industry to return to profitability.

Consumption

Based on data from Kantar Worldpanel, the average price paid by consumers for pig meat products in the four weeks to 25 November were little changed from the previous four-week period, with sausages a little more expensive and sliced cooked meats slightly cheaper. However, prices paid for fresh and frozen pork were eight per cent higher than a year earlier. In contrast, sliced cooked meats were five per cent cheaper, while bacon and sausage prices were similar to a year earlier.

With the exception of sliced cooked meats (mainly ham), sales of pig meat were lower in the 12 weeks to 25 November than a year earlier. The largest falls were for fresh and frozen pork, with the amount purchased down by seven per cent year on year, partly due to higher prices. Pork chops, leg and shoulder joints all recorded double digit falls, although the latter was partly due to consumers switching to loin roasting joints, sales of which were up 14 per cent. Pork belly remained popular, with sales up 18 per cent. The trend in pork sales was broadly similar during the most recent four-week period, which covered most of November.

During the 12-week period, purchases of bacon and sausages were both down by less than one per cent compared with a year earlier. Sausage purchases recovered somewhat in the latest four weeks, up three per cent on the year, with seasonal factors meaning sales of both sausages and bacon were at their highest level so far this year. Strong ham sales continued, with purchases of sliced cooked meats up seven per cent in the 12 weeks to 25 November. Strong sales continued into November.

Trends in Retail Meat Purchases (Period Ended 25 November 2012)

With several major sporting events taking place over summer 2012 you could have been forgiven for predicting that the barbecue season would be buoyant. However, summer 2012 was characterised by rain and a lot of it. August did buck the trend with slightly higher temperatures towards the end of the season. The opportunity for barbecues was certainly not helped by the weather but on a brighter note, the success of the Olympics and Paralympics made them a real highlight of the year.

So in light of this, how did barbecue meat sales do this year? Overall, sales of burgers and grills, the category most influenced by barbecue demand, increased by four per cent in summer 2012 compared to the same period in 2011, although it is worth remembering that last year was not a vintage barbecue season either. After poor sales for the four weeks to 13 May 2012, things picked up in the following period (ending 10 June) only to dip again for the rest of June and the start of July, when we saw some of the poorest weather. Year-on-year growth returned again for the following periods.

In terms of the meat products most likely to be eaten at our barbecues, sausages remain top of the menu. Sausages are featured at 45 per cent of all barbecue meal occasions, followed by beef burgers at 39 per cent. Sausages are also doing well in terms of growth, with the number of meal occasions increasing by nine per cent year on year.

Looking at when barbecues are most likely to occur, the occasion is mainly about the weekend – around half take place on Saturday and Sunday. Half of all barbecues occur in the evening with barbecues taken at lunch time tending to be later in the afternoon and continuing into early evening, replacing the evening meal.